Company tenancies – Pre-tenancy tips

Not all residential tenancies will be in the name of an individual. Sometimes it will be a company looking to take out the tenancy in their own name. Generally, this will be for the use of the one of the directors and their family. Often these sorts of agreements are seen as beneficial to many landlords who are under the impression that the company will be prompt with payment and ultimately good for the money. Whilst this can certainly be the case, it does not always work out this way. The same level of due diligence that you would carry out for a residential tenancy with an individual is required, if not more.

One of the many things that the recent pandemic has brought firmly into focus is the fragility of certain businesses. Situations that are entirely beyond the control of the company can mean that a business goes from profitable to not, in an instant. This is a topic that we looked at in our recent blog on ‘Rent to Rent’ agreements. As such, if you are a landlord or managing agent you will need to be aware of the status of your company tenant, regularly checking on Companies House to access this information.  Should a tenant go insolvent whilst they remain a tenant, it is not a simple process to simply recover vacant possession by changing the locks. The occupiers in the property remain. Simply kicking them out would amount to unlawful eviction given that when they continue to be lawful occupiers. This along with any number of other risks, mean that the landlord may consider the following:

 

Guarantors

When entering into an agreement with newer companies, companies based abroad or with financial concerns, it may be worth getting a director to act as personal guarantor. This way if the unthinkable happens and the tenant company does become insolvent, there is an individual that can be pursued for the accruing debts. The tenancy continues until properly determined and so obligations for rent continue for which the guarantor will be liable. This creates some leverage for the landlord that may not have existed if the only party that could be pursued is a company that no longer exists. 

 

Confirming the intended use of the property

As part of the due diligence process prior to the tenancy starting, it is crucial to ask the important questions. Never assume. What does the company do? Who will be occupying? How many people will be occupying? The answers to these questions (in writing) offers re-assurance but can also produce red flags. For instance, if you find out that the tenant is a company that is a professional landlord/serviced apartment company, you will know that you are probably entering into a ‘Rent to Rent’ agreement. This can be even more dangerous depending on the outcome of the Supreme Court decision in Rakusen v Jepsen which is due to be heard at the end of January.

 

Person giving instructions

It is not always straight forward to know who you should be taking instructions from. Asking the question early and getting suitable proof (list of directors from companies house, letters of authority etc) will ensure that the decisions and agreements made are binding and enforceable.

 

Signing the agreement

Whilst you can take instructions from the correct person, you also need to ensure that the formalities of signing the agreement are correct. Despite entering into the agreement with the company, the company itself is not an entity that can sign itself, there needs to be an individual signing on behalf of the company.  Particularly when using electronic signature providers like DocuSign, we have seen plenty of examples where the agreement is signed in the name of company. This is not an effective way of signing the agreement and would likely create a ‘tenancy at will’ which has knock on effects of enforcing clauses in the contract such as the forfeiture provisions.

Company tenancies are a fairly common arrangement but treating all tenancies as a one size fits all operation leaves you open to errors which can be difficult to recover from. Makes sure you know what you are entering into and that it is done correctly. Many of these pitfalls can be recovered from but it tends to be far more cost effective to spend the time at the beginning to reduce the risk later. We will be developing on this topic when discussing forfeiture in a future blog.

 

If Boyes Turner can be of assistance in advising when there are any of the above issues, then we would be happy to do so. I can be contacted on [email protected].